-  Maintain SELL on Genting Plantations (GenP) with a higher fair value of RM10.75/share. Our fair value for GenP implies an FY15F PE of 19x.

-  GenP’s annualised core pre-tax profit (ex-RM19.8mil forex gain) was within our estimates. It rose by 32% YoY to RM124.9mil in 1QFY14 underpinned by the absence of the RM35mil donation expense, which occurred last year, and higher CPO price and production.

-  Plantation turnover rose by 26.6% YoY to RM290mil in 1QFY14. Out of these, Indonesia accounted for 14.3%. In terms of EBITDA, Indonesia accounted for 10.8%.

-  GenP’s plantation unit in Indonesia recorded an EBITDA of RM13.6mil in 1QFY14 compared with a break-even in 1QFY13. The division achieved an EBITDA of RM23.4mil in FY13 and RM18.3mil in 4QFY13.

-  Average CPO price realised in Malaysia was RM2,659/tonne in 1QFY14, 16% higher than the price of RM2,293/tonne achieved in 1QFY13.

-  GenP recorded a FFB production growth of 3.6% YoY in 1QFY14. FFB output in Malaysia fell by 5.5% but in Indonesia, GenP’s FFB production expanded 83.8%. Indonesia accounted for 18% of group FFB production in 1QFY14 (1QFY13: 10.2%).

-  For FY14F, GenP’s FFB production is expected to grow by 10%. The group’s FFB production in Malaysia is envisaged to rebound from August onwards and peak in October this year, thus offsetting the 5.5% YoY decline in 1QFY14.

-  Group production cost was RM1,325/tonne in 1QFY14. We understand that fertiliser application was slightly behind schedule in 1QFY14 but it will pick up from 2QFY14 onwards.

-  GenP’s cost of potash is expected to increase by 20% in 2HFY14. Prices of phosphate and urea are anticipated to remain flat. GenP enjoyed a 20% YoY fall in fertiliser costs in 1QFY14.

-  GenP is hoping that RSPO (Roundtable for Sustainable Palm Oil) would lift its suspension soon. The group had already submitted the documents on its new planting programme to RSPO. There was no adverse impact from the suspension of GenP’s membership.

-  New plantings are forecasted at 5,800ha in FY14F. GenP carried out new plantings of 2,100ha in Indonesia in 1QFY14, out of which 300ha were for plasma farmers. 

Source: AmeSecurities